Keep Calm and Carry On: There is No Craft Beer Bubble

It’s that trend-spotting time of the year. You’ll see all sorts of prognostications for 2017, but for the possibilities that are yet to be, there are always a few things we can always count on.

People will continue to buy India Pale Ales in massive volumes. Craft beer will steal more dollars and volume from Big Beer. More breweries will open, setting new record-highs along the way.

With these trending stories also comes a typical narrative that rears itself when we talk about new businesses opening and closing: should we start worrying about a bubble? It’s hard to talk about the industry as a monolith, though. In an era where “starting small is the name of the game,” there are plenty of ways to survive in craft beer.

"The business models we have are becoming as diverse as the beer we're making,” Michael Kiser noted on a recent recording of the Good Beer Hunting podcast.

Unlike the “shakeout” of 20 years ago, there’s a distinct change in how brewery owners are growing their businesses. It’s not about scaling up as fast as possible and going nationwide. There are plenty of examples of behavior that indicate the latest wave of brewers and owners may be the smartest yet.

In December, Fat Head’s Brewery, a Pennsylvania-founded company that moved their largest brewing operations to Ohio and has a brewpub in Oregon as well, announced it would remove its distribution from Florida after three years in the state. From 2013 to 2016, Fat Head’s expanded overall production from 12,000 to 20,000 barrels, but its original footprint of Ohio, Pennsylvania and Indiana have proven to be enough.

“Excitedly, this will allow us to grow more substantially in our heartland in the coming year than we would otherwise have been able to do,” Bill Wetmore, Fat Head’s Head of Sales & Marketing said in a press release.

It’s a good idea for a couple reasons. First, through Untappd data, we know the closer drinkers are to a brewery, the higher they rate a beer. If you’re going to focus on making your customers happy, it might as well be the most loyal bunch. Like the rest of the country, each of Fat Head’s three biggest states have also flocked to drinking more locally, so they’ve got an affinity for what they recognize and know.

The problem in the 1990s and early 2000s was the exact opposite. Breweries were going after drinkers wherever they could find them, distribution and customer preference be damned. Today’s adage of going “a mile deep” instead of a “mile wide” is paying off as more beer enthusiasts seek what’s nearby and breweries are happy to oblige. Growth is calculated.

“Really, my vision is just to have a little neighborhood brewery — a community brewery out there in the Hill Country — and not really aim for any distribution, especially not nationwide,” former Jester King head brewer Garrett Crowell told Brewbound about his intentions to open his own business.

In today’s marketplace, this is a viewpoint that’s seen as the dream: to be well connected within a community and be the brewery of choice, not trying to establish yourself in as many locations as possible.

So what are we supposed to make of news that craft beer sales are slowing? According to market research firm IRI, which tracks beer sales, and as reported by Brewbound, the amount of beer purchased and money spent in supermarkets in 2016 is way down from the previous year:

Mike Duesenberg / Good Beer Hunting / Data: IRI

But don’t fret, notes Bart Watson, the Brewers Association's economist. In a July 2016 analysis of scan data used to track beer sales, Watson found that “scan data appears to do a good job of measuring the aggregated experience of the top 25 percent of craft brewers (who represent much more in volume terms). However, there is strong evidence that the tail (and consequently the craft category as a whole) continues to be healthier than scan data has suggested. So a slowdown for regionals may be real, but craft’s overall slowdown is not as sharp.”

Most recently, he notes the decrease is mainly attributed to the biggest “crafty” brands, like Blue Moon and Shock Top, but things also aren’t easy on “regular” craft brewers, who continue to try to find ways to refresh lineups as flagships like Sierra Nevada Pale Ale or Sam Adams Boston Lager sell less. The majority of breweries – especially local ones – are doing fine.

Mike Deusenberg / Good Beer Hunting / Data: Alcohol Tax and Trade BureauSmall breweries make up the lions' share of breweries, and they may still be in healthy situations, even as the big craft breweries – which make up most of the paid tax volume (right) – change the way the overall market look.

One noticeable change Watson mentioned was decreased supermarket scans of the lowest-production breweries, “suggesting retailers aren’t picking up as many small brands anymore,” he wrote in an email. However, that can be a good thing, as typical customers looking for small, local breweries in grocery stores wind up at the brewery taproom instead, a movement that is popular among consumers and breweries.

Which is exactly why much of the beer world is now turning its gaze toward regional access, not national. Instead of saturating markets across the country, hoping to force out competition, businesses small and large are strategically picking their spots.

Mike Deusenberg / Good Beer Hunting / Data: Brewer's Association & Craft Beer AustinGrowth is steady in Texas, and there are other markets have the same upside.

In cases like these, business moves are being based on market efficiency. They’re not being made in a vacuum. The reason these are attractive breweries is because there’s recognition that each state has room to grow.

And, surprise, even at a rate of nearly two breweries opening a day in the U.S. we can still handle more. “... the whole argument for why craft isn’t a bubble is built on the foundation of beer lover demand,” Watson wrote in August 2016.

So here’s the thing: when your beer fanatic friends start talking to you about too many breweries (over 5,000!) or when a random brewery closes (businesses close all the time!), know that everything is going to be okay.